Stryker India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 998/DEL/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0126 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 21-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Set aside
• Section: 144C; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) SHRI KULDIP SINGH, JUDICIAL MEMBER AND BEFORE PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 998/DEL/2017 (ASSESSMENT YEAR : 2010-11) STRYKER INDIA PRIVATE LIMITED VS DEPUTY COMMISSIONER C-5, 1 ST FLOOR SDA COMMERCIAL INCOME TAX, COMPLEX, NEW DELHI-110016 CIRCLE 9(1), NEW DELHI ( APPELLANT ) (RESPONDE NT) APPELLANT BY : RISHABH MALHOTRA, ADV . REVENUE BY : SH. SARAB JEET SINGH, SR. DR DATE OF HEARING : 11 .12.2019 DATE OF ORDER : 31.12.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. STRYKER INDIA PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FIL ING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 07/11/2016 PASSED BY THE ASSESSING OFFICER (AO) IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TPO UNDER SE CTION 254/143 (3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (FOR SHORT ITA NO. 998/DEL/2 017 2 THE ACT) QUA THE ASSESSMENT YEAR 2010-11 ON THE G ROUNDS INTER ALIA THAT :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN LAW AND IN FACTS IN PASSING A LACONIC ORDE R MAINLY BASED ON THE ORDER OF THE LD. AO AND NOT GIVING HIS INDEPENDENT AND REASONED FINDINGS ON THE ISSUES RAI SED IN THE APPEAL BEFORE HIM, ON THE BASIS OF AVAILABLE MATERI AL ON RECORD AND DETAILED STATEMENT OF FACTS FILED BY THE APPELLANT. 2. WITHOUT PREJUDICE TO GROUND NO. 1, THE LD. CIT(A)/A O ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE VALUE O F THE APPELLANTS INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF MANAGEMENT CONSULTANCY SERVICE FEES TO ITS ASSOC IATED ENTERPRISES (AES) TO NIL AS AGAINST RS. 3,92,78, 877 INCURRED BY APPELLANT FOR AVAILING SUCH SERVICES AN D IN DOING SO HAVE GROSSLY ERRED IN: 2.1. DISREGARDING THE BENCHMARKING APPROACH AND METHODOL OGY UNDER TRANSACTIONAL MET MARGIN METHOD (TNMM) FOLLOW ED BY THE APPELLANT IN TRANSFER PRICING DOCUMENTATION MAINTAINED UNDER SECTION 92 OF THE ACT READ WITH RU LE 10D OF THE INCOME-TAX RULES, 1962 (THE RULES) FOR DETERM INING THE ARMS LENGTH PRICE OF MANAGEMENT CONSULTANCY SERVIC E FEE PAID TO THE AES AND APPLYING COMPARABLE UNCONTROLLE D METHOD (CUP) AND DETERMINING THE ALP OF THE SERVICE S AVAILED BY THE APPELLANT AT NIL; 2.2. HOLDING THAT THE APPELLANT DID NOT RECEIVE ANY ASSISTANCE/SERVICE, OR NO COMMENSURATE DIRECT AND T ANGIBLE BENEFIT IN LIEU OF THE PAYMENT MADE BY IT FOR SERVI CES AVAILED WERE RECEIVED; 2.3. THE APPELLANT DID NOT HAVE ANY NEED FOR SUCH SERVI CES/ PAYMENTS; THEREBY CHALLENGING THE COMMERCIAL WISDOM OF THE APPELLANT IN MAKING SUCH PAYMENTS WHILE PASSING THE ORDER IN CONTRAST WITH THE RECENT JUDICIAL PRONOUNCEMENTS IN THIS REGARD; 2.4. DISREGARDING THE DISTINCTION IN THE NATURE OF SERV ICES RECEIVED FROM THE AES AND THOSE PERFORMED BY THE APPELLANT, WHILE CONCLUDING THAT THERE IS DUPLICATION OF SERVICES HA PPENING IN THE APPELLANT'S CASE, AND HENCE THE PAYMENT OF MANA GEMENT CONSULTANCY SERVICE FEES WAS NOT WARRANTED; 2.5. CONCLUDING THAT THE SERVICES RECEIVED BY THE APPELL ANT ARE ACTUALLY ROUTINE AND GENERIC IN NATURE AND WHILE SO ME SERVICES ARE INTEGRAL TO THE BUSINESS, IT COULD HAV E BEEN PERFORMED INHOUSE/OBTAINED LOCALLY, AND NEED NOT HA VE BEEN AVAILED FROM THE AES; ITA NO. 998/DEL/2 017 3 2.6 CONCLUDING THAT NO COST BENEFIT ANALYSIS HAD BE EN FURNISHED BY THE APPELLANT WITH RESPECT TO PAYMENT OF MANAGEM ENT FEE; 3. WITHOUT PREJUDICE TO GROUND NUMBER L, ON THE F ACTS AND CIRCUMSTANCES PECULIAR TO THE CASE, THE LD. CIT(A)/ AO ERRED IN LAW AND FACTS IN CONFIRMING THE ORDER OF THE LD. AO WITH REGARD TO ADDITION OF INCOME OF THE APPELLANT BY RS . 1,35,887/- BY ADDING BACK THE SUPPOSED EXCESS DEPRE CIATION CHARGED BY THE APPELLANT ON COMPUTER PERIPHERALS, V IZ., BATTERIES PURCHASED DURING THE YEAR. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN LEVYING INTEREST U/S 2 34B AND 234D ON THE APPELLANT UNDER THE ACT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE PENALTY ORDER PASSED BY THE LD.AO, LEVYING PENALTY ON THE APPELLA NT UNDER SECTION 27I(I)(C) OF THE ACT. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND O R WITHDRAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEARING. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. STRYKER INDIA PRIVAT E LIMITED IS A WHOLLY OWNED SUBSIDIARY OF STRYKER FAR EAST INC. WHICH IN TURN IN A WHOLLY-OWNED SUBSIDIARY OF STRY KER CORPORATION, USA. TAXPAYER IS INTO MARKETING AND D ISTRIBUTING IMPORTED ORTHOPEDIC IMPLANTS, MEDICAL AND SURGICAL PRODUCTS, MANUFACTURED BY ITS GROUP COMPANIES IN INDIA. THE T AXPAYER IS ALSO ENGAGED IN DISTRIBUTION OF STRYKER PRODUCTS VIZ ORT HOPEDIC IMPLANTS AND SURGICAL EQUIPMENTS. 3. DURING THE YEAR UNDER ASSESSMENT THE TAXPAYER EN TERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AE AS UNDER :- ITA NO. 998/DEL/2 017 4 S. NO. DESCRIPTION OF THE TRANSACTIONS CLASS METHOD APPLIED AMOUNT (IN RUPEES) I. PURCHASE OF FINISHED GOODS CLASS-1 TRANSACTIONS RPM 393,566,248 II. EXPORT OF FINISHED GOODS 190,191 III COST ALLOCATION PAID (FREIGHT TOWARDS PURCHASE OF FINISHED GOODS/SURGICAL INSTRUMENTATION SETS) 324,193 IV. MANAGEMENT CONSULTANCY EXPENSES CLASS II TRANSACTIONS TNMM 39,278,877 V. PURCHASE OF SURGICAL INSTRUMENTATION SETS CLASS- III TRANSACTIONS CUP 26,773,038 VI. COST ALLOCATION PAID 7,596,081 VII. COST RECHARGE PAID 8,434,054 4. LD. TPO DISPUTED THE PAYMENT OF MANAGEMENT CONS ULTANCY EXPENSES MADE BY THE TAXPAYER TO ITS AE QUA WHICH T AXPAYER HAS ENTERED INTO A SERVICE AGREEMENT WITH THE STRYKER PACIFIC HONH KONG DATED JANUARY 1, 2009, TO AVAIL OF CERTAIN G ENERAL ADMINISTRATION AND VARIOUS OTHER SUPPORT SERVICES, IN THE NATURE OF LOGISTIC, IT, ETC., INCLUDING MARKETING SUPPORT. TP O IN ORDER TO BENCHMARK INTERNATIONAL TRANSACTIONS QUA PAYMENT O F MANAGEMENT CONSULTANCY SERVICES RECEIVED BY THE TAXPAYER NOTIC ED THAT THE FUNCTIONS PERFORMED BY AE ARE VERY GENERIC IN NATUR E AS THE SIMILAR ITA NO. 998/DEL/2 017 5 SERVICES ARE ALREADY BEING PERFORMED BY THE TAXPAYE R AND AS SUCH THERE IS NO NEED TO OUTSOURCE THE SERVICES. TPO FUR THER NOTICED THAT SO FAR AS FUNCTIONS RELATING TO LOGISTICS ARE CONCE RNED, SAME ARE ALSO INTEGRAL TO ANY ORGANIZATION AND PRIMA FACIE IT APP EARS THAT NO COMPANY WOULD OUTSOURCE THESE BASIC FUNCTIONS WHICH CAN VERY WELL BE PERFORMED BY ITSELF AND SIMILARLY SERVICES LIKE CONSULTANCY SERVICES ARE COUNTRY SPECIFIC AND THERE IS LITTLE T HAT THE AE CAN CONTRIBUTE IN THIS MATTER. 5. DECLINING CONTENTIONS RAISED BY THE TAXPAYER THE LD. TPO PROCEEDED TO OBSERVE THAT THE TAXPAYER HAS FAILED T O PROVE THE BENEFITS THAT IT HAD RECEIVED FROM THE SERVICES; TH AT TAXPAYER HAS NOT FURNISHED ANY EVIDENCE AS TO THE COST BENEFIT ANALY SIS; THAT EVIDENCES PRODUCED BY TAXPAYER QUA RECEIPT OF MANAG EMENT SERVICES IS TO GENERIC ; AND THAT BENCHMARKING DONE BY TAXPAYER IS REJECTED AND LD. TPO APPLIED CUP METHOD TO BENCHMA RK THE INTERNATIONAL TRANSACTION. 6. CONSEQUENTLY, TPO PROCEEDED TO HOLD THAT THE PAY MENT MADE BY TAXPAYER TOWARDS THESE SERVICES ARE DUPLICA TE IN NATURE AND BY APPLYING THE CUP METHOD DETERMINED THE ARMS LENGTH PRICE OF TRANSACTION OF PAYMENT OF MANAGEMENT FEE AT NIL AS AGAINST RS. 3,92,78,877/- BY THE TAXPAYER AND THEREBY ENHAN CED THE INCOME OF THE TAXPAYER BY RS. 3,92,78,877/-. ITA NO. 998/DEL/2 017 6 7. ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) BY FILING THE APPEAL WHO HAS CONFIRMED THE ORDER PASSED BY AO PU RSUANT TO THE ORDER PASSED BY TPO BY DISMISSING THE APPEAL. FEELI NG AGGRIEVED THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. BARE PERUSAL OF PARA 3.1 OF THE IMPUGNED ORDER P ASSED BY LD. CIT(A) GOES TO PROVE THAT INITIALLY THE CASE WAS KE PT ON ADJOURNING ON THE ADJOURNMENT REQUEST MADE BY THE TAXPAYER AND THEREAFTER THE CASE WAS TRANSFERRED TO CIT(A)-38 ON 09.03.2016, WH EN FRESH NOTICE WAS ISSUED ON 17.08.2016. THEREAFTER AGAIN C ASE WAS KEPT ON ADJOURNING FOR 2 DATES ON THE ADJOURNMENT APPLICAT IONS FILED BY THE TAXPAYER AND LD. CIT(A) PROCEEDED TO DECIDE THE CASE EX PARTE. 10. PERUSAL OF THE FINDINGS RETURNED BY LD. CIT(A) IN PARA 4.2 OF THE IMPUGNED ORDER GOES TO PROVE THAT THE APPEAL HA S BEEN DISMISSED FOR WANT OF NON-PROSECUTION AND NO FINDIN GS ON MERIT HAVE BEEN RETURNED. NO DOUBT, LD. CIT(A) WAS NOT UN DER ANY OBLIGATION TO ADJOURN THE CASE TIME AND AGAIN AT TH E REPEATED ITA NO. 998/DEL/2 017 7 REQUEST OF TAXPAYER BUT AT THE SAME TIME THE CASE W AS REQUIRED TO BE DECIDED ON MERITS. THE LD. AR FOR THE ASSESSEE ALSO STATED THAT ONE OPPORTUNITY MAY BE GRANTED TO THE TAXPAYER TO PROVE ITS CASE AND THE TAXPAYER WILL ASSIST THE LOWER APPELLATE AUTHOR ITY WITHOUT SEEKING UNNECESSARY ADJOURNMENT. 11. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT SINCE THE CASE HAS NOT BEEN DE CIDED BY LD. CIT(A) ON MERIT, ADEQUATE OPPORTUNITY OF BEING HEA RD IS GRANTED TO THE TAXPAYER AND CONSEQUENTLY, CASE IS REMITTED BAC K TO LD. CIT(A) TO DECIDE AFRESH ON MERITS AFTER PROVIDING OPPORTUN ITY OF BEING HEARD TO THE TAXPAYER. 12. CONSEQUENTLY APPEAL FILED BY THE TAXPAYER IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF DECEMBER, 2019. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SI NGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31/12/ 2019 BR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT(A), NEW DELHI. ITA NO. 998/DEL/2 017 8 AR, ITAT NEW DELHI DATE OF DICTATION 16/12/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06/12/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER